Holmes Report Blog

The Holmes Report blog focuses on news and issues of interest to public relations professionals. Our main site can be found at www.holmesreport.com.

Monday, July 24, 2006

The Media's Role in Governance: Some new research from the University of Chicago suggests that media coverage can be more effective at enforcing high standards of corporate governance that regulation.

The authors analyzed two Russian companies: Sidanco, a little-known holding company in the oil and gas sector, and MGTS, the telecommunications company for Moscow. In 1998, both companies attempted to issue shares to parties linked to insiders at well below the prevailing market price. But while both companies committed similar corporate governance abuses, Sidanco included the Hermitage Fund—an activist fund—among its investors.

Hermitage was actively involved in trying to generate media coverage about Sidanco. The authors found that Sidanco’s actions were reported in 23 news articles, 14 of which appeared in credible international publications, including the Financial Times, The Wall Street Journal, and the Economist. In contrast, MGTS had only three articles mentioning its corporate governance violation. In the case of Sidanco, the abuse was reversed, while in MGTS the dilutive share issue was quickly approved.

According to the article at Capital Ideas, “the authors were able to show that it was a component of foreign press coverage driven by the Hermitage Fund action that drove the results, suggesting the link between coverage and outcome is more than a mere correlation.”

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